Fake users and an angry developer -- Facebook's bad week

With its stock still slumping, Facebook executives were faced with not one but two other pieces of tough news this week.

Just as an angry third-party developer blasted Facebook's alleged high-handed negotiation tactics in an open letter to CEO Mark Zuckerberg, the company also reported that about 83 million of its user accounts are fake.

"Any one thing isn't so bad but the cumulative effect is terrible," said Zeus Kerravala, an analyst with ZK Research. "Why would any investor put more money into them? This was certainly a strange situation and it makes you wonder how many skeletons might be out there."

The trouble started Wednesday when startup entrepreneur Dalton Caldwell, co-founder of such sites as iMeem and PicPlz, posted on his blog an open letter to Zuckerberg accusing him of bullying practices.

Caldwell said he demoed an iOS app that he had built on the Facebook platform. He said he was looking for support for his upcoming product launch.

That's not what he said he got.

Instead, Facebook execs told him his app competes with the new Facebook App Center, and they wanted to buy his company.

"I quickly became skeptical and explained that I was not interested in an acqui-hire," Caldwell wrote. "I had zero interest in seeing my product shut down and joining Facebook. I told your team I would rather reboot my company than go down that route."

Facebook did not respond to a request for comment.

While it's another embarrassing hit to Facebook this week, Dan Olds, an analyst with The Gabriel Consulting Group, said he's not surprised at Facebook using a strong business strategy.

"To me, it sounds like both Caldwell and Facebook are working on very similar services and, understandably, Facebook is going to pursue their version of it rather than bless and support Caldwell's version," he added. "While it's not a good result for Caldwell, it's how business works. Sometimes you win. Sometimes you lose."

Early Thursday, Vic Gundotra, Google's senior vice president of social business, in a Google+ comment, said Google is working to avoid "screwing over developers."

Taking a swing at Facebook in the wake of Caldwell's letter, Gundotra focused on his decision to not open the Google+ application program interface (API).

"I get a lot of heat for not releasing a full write API for Google+," he wrote. "When we open an API, we want developers to feel confident that the innovations they build are going to be long lasting. Releasing an API, and then later changing the rules of the game isn't fun for anyone, especially developers who've spent their life's energies building on the platform."

On the heels of Caldwell's letter and Gundotra's post, was a Facebook statement to the U.S. Securities and Exchange Commission that 83 million of Facebook's users are fake.

In a 10-Q filing with the U.S. Securities and Exchange Commission, Facebook reported that of their 955 million monthly active users, approximately 83 million are not legitimate.

The company reported that people with more than one Facebook account, which is against the site's policies, amount to 4.8% of their monthly active users. They also noted that "false accounts," which include misclassified accounts and accounts set up for, say, spamming, account for 3.9%.

That adds up to 8.7% of Facebook's user base - or 83 million users.

Olds said every social network has a certain percentage of abandoned accounts, fake users, and accounts that exist only to game the system. It's unavoidable.

"But even though this is a fact of life, it's an embarrassing fact of life for social network providers and one that they'd rather not talk about," he added. "What's troubling is when advertisers begin wondering how many of their clicks are from real users and how many might be from fake accounts."

Olds pointed out that now that these numbers are out in the open, Facebook needs to openly address what they're going to do about it.

Kerravala said between these issues and the company's slumping stock price, which slid below $20 per share Thursday afternoon, Facebook has a lot of public relations work to do.

"I think all of this has taken much of the shine off Facebook," he added.

PCW Evaluation Team

I would recommend this device for families and small businesses who want one safe place to store all their important digital content and a way to easily share it with friends, family, business partners, or customers.

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